It looks like things are getting heated in the board backroom of Slate Office REIT (TSX: SOT.un). 17 days before the scheduled Annual General Meeting, George Armoyan decided to let loose a proxy solicitation to install two additional directors out of six. If he won, including himself, that would constitute a board of six directors – George himself, two controlled by him, two directors (the co-founders, who are brothers) and an independent.
To take action this late in the game suggests that there was some sort of board decision that pissed him off.
Armoyan controls 17.7% of the units, or 15.1 million units of Slate, which gives him huge sway considering that only 36 million units voted on the resolution to increase the gross book value to debt ratio of 65% earlier this year. When adding the 1,123,880 units that one of the director nominees owns, it’s a near majority. 32 million units voted in the 2023 annual general meeting. It’s quite likely that Armoyan will find at least a million or so disgruntled Slate Office holders to vote in his direction to put him over the top.
Part of the previous vote was a consent to decrease the board size from 8 to 6 trustees, which means there are less people for him to take out. If he is successful, he will effectively have at least a veto on every decision from the board, which is close enough to having control of the entire operation.
I do note, however, when reading the proxy solicitation statement, that it must have been hastily constructed. Witness the following from their proxy solicitation:
On the bottom, “PROTECT YOUR IVESTMENT IN SLATE OFFICE REIT”. Not the greatest look for the professionalism of Morrow Sodali, the firm being engaged to solicit the proxies.
Perhaps they all just need to hold on until after June 25 before going into CCAA – at least when everybody disposes their units for zero, they get 2/3rds and not 1/2 inclusion on the capital loss. To be clear, this was a joke and not a prediction although the last financial statement released by the trust is not looking that good!
Also Sime Armoyan controls $12.4M of the debentures.
Future losses at Slate arise now only from further adjustments to the value of the portfolio. Slate generates enough revenue to cover operations, SG&A and interest. I suggest that CCAA seems a remote and unnecessary option, although limited or no residual future value may be in the units.
While this might be barely true, reading the 4-point font on footnotes 2 and 6 of Note 10 on the year-end financial statements (page 21) would suggest a dire situation that will 99% result in some sort of recapitalization. Maybe not CCAA. But it looks really bad. Worthy of even being two point font.
I agree a recapitalization is probable. CCAA is the route when lenders and company leaders need a referee. When lenders and leaders are the same, something typically gets worked out. The Armoyans’ don’t really need to protect their equity interest, so they may not. They may come out the other side of a recap with more control of a stronger company by letting the units go to zero.
A day after I posted this, Slate announced (morning of April 20, 2024) – looks like my speculation that there was some sort of backroom fight:
Slate Office REIT Provides Update on Resignation of Trustee and Nomination of Trustees at Upcoming Annual Meeting of Unitholders
Subsequent to the delivery and filing of the REIT’s materials related to the Meeting (including the REIT Circular, form of proxy and voting instruction form), the REIT received notice (the “Notice”) from Armco of its intention to nominate two additional individuals – Brian Luborsky and Scott Dorsey – for election as trustees at the Meeting, and G2S2 and Armco have since filed a dissident information circular (the “G2S2 Circular”) and form of proxy in respect of those nominations, including a recommendation to unitholders that votes be withheld in respect of the election of two of the independent trustees – Jean-Charles Angers and Lori-Ann Beausoleil – at the Meeting.
Following receipt of the Notice, Lori-Ann Beausoleil advised the Board that she is declining to stand for re-election to the Board and tendered her resignation as a trustee of the REIT effective May 2, 2024 and, thus, will not be standing for re-election at the Meeting. Following unsuccessful attempts by the REIT to come to a cooperative outcome with Mr. Armoyan, and in light of the resignation of one of the Board’s nominees for election at the Meeting, on the recommendation of the Governance Committee, the Board resolved to nominate Scott Dorsey in place of Ms. Beausoleil and to add Mr. Dorsey to the REIT’s slate of management nominees to be considered for election as trustees at the Meeting. Mr. Dorsey is also one of the individuals put forward by Armco.